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Tuesday's session saw a widespread decline, with the US Nasdaq taking the biggest hit at 2.2%, which is understandable as it has seen significant gains during the bullish market. Several factors contributed to this downturn, including concerns about excessive growth in 2023, the impact of interest rates, troubling trends in China, and signs of an economic slowdown. However, the primary trigger for the market's anxiety was Fitch's downgrade of the US sovereign rating, leading to heightened worries about US debt. This rating downgrade brought attention to an upcoming major US Treasury bond issue, larger than expected, fueling concerns about increased US financing needs. Many experts have emphasized the importance of addressing the fiscal situation before facing further challenges, leading to extensive discussions on this matter.
As a consequence, US 10-year yields increased to 4.11% this morning, reaching levels last seen in November. The VIX volatility index also saw a slight rise, returning to its May levels. The VIX, known as the "fear index," tends to go up when market confidence declines.
Currently, macroeconomics is taking the spotlight away from corporate results, at least until the release of quarterly results from Apple and Amazon later today. These two companies have the ability to influence the market significantly on their own. Besides debt concerns, the session will also feature various indicators, including services PMIs, which are reliable measures of business sentiment in the service sector. China's recent positive statistic on the Caixin services PMI, which rose to 54.1 points against economists' expectations of a decline, helped boost China's stock markets. In contrast, other markets in the Asia-Pacific region faced a more challenging situation.
On the Asia-Pacific markets, the Nikkei 225 lost a further 1.4% this morning in Japan, while Korea's KOSPI returned 0.3%. Australia is also in the red, with the ASX200 down 0.7%. The Taiwan Stock Exchange is closed due to a cyclone. European leading indicators are hesitantly bearish, although the Chinese services PMI has given the bullish camp a bit of a boost.
Today's economic highlights:
The final PMIs for the services industry in the major economies in July will be published throughout the day. The US indicator will be joined by its alter-ego, the ISM services index, at 10:00 am. The Bank of England announced its rate decision at 7:00 am. There will also be the Challenger survey on layoffs (7:30 am), weekly employment figures (8:30 am) and durable goods orders (10 am.). See the full agenda here.
The dollar wins a little ground around 0.9146 EUR and 0.7907 GBP. The ounce of gold fell back to 1933 USD. Oil consolidates, with North Sea Brent at 83.24 USD a barrel and US light crude WTI at 79.39 USD. The yield on 10-year US debt reached 4.10%. Bitcoin is trading at 29,110 USD.
In corporate news:
- Qualcomm announced on Wednesday that it was anticipating lower-than-expected sales for the current quarter. The company is also planning to cut jobs in view of weak demand for smartphones against a backdrop of slowing global economic growth. Qualcomm shares fell by 8.4% in pre-market trading, while in its wake Nvidia and Intel each lost 0.5%.
- PayPal Holdings was down 7.8% in premarket trading, as investors were disappointed by the payment group's quarterly operating margin, even though executives had said they expected an improvement towards the end of the year.
- Apple, Amazon, Airbnb, Coinbase, Amgen and Metlife are due to publish their respective quarterly results this Thursday after the Wall Street close.
- Tesla sold 64,285 electric vehicles produced in China in July, down 31% on June, data from the Chinese industry federation (CPCA) showed on Thursday.
- Moderna was up 3.3%, having raised its annual sales forecast for its COVID-19 vaccine to up to $8 billion.
- Regeneron Pharmaceuticals gained 2.5% in premarket trading following the publication of better-than-expected quarterly earnings, driven by strong demand for Dupixent, its eczema treatment.
- Hasbro gained 2.5% in pre-market trading after reporting better-than-expected second-quarter sales. The group will also sell its eOne film and studio subsidiary to Lionsgate Entertainment for around $500 million.
- Robinhood Markets reported higher second-quarter revenues on Wednesday, but a drop in the number of monthly active users. The stock was down 4% in after-hours trading.
- Occidental Petroleum raised its full-year production forecast by 1% on Wednesday, but reported a lower-than-expected quarterly profit amid lower oil and gas prices and asset write-downs.
- On Wednesday, Doordash once again raised its annual operating profit forecast after reporting better-than-expected quarterly sales on the back of a rise in orders, sending the share jumping by 5.2% in pre-market trading.
- Etsy fell by 9% in premarket trading after the online sales platform reported quarterly sales below market expectations, against a backdrop of falling demand.
- Albemarle, the world's leading lithium producer, gained 5% in premarket trading after raising its adjusted annual profit.
Analyst recommendations:
- Extreme Networks: Rosenblatt Securities raised the target to $35 from $30. Maintains buy rating.
- Ferrari: Intesa Sanpaolo cut the recommendation to hold from buy. PT set to $327.48.
- Mears Group: Numis Securities set Price target to 300 pence.
- Roku: Citi downgrades to neutral from buy. Price target set to $100.
- Simon Property Group: Evercore decreases to inline from outperform. PT up 4% to $129.
- Staar Surgical: Stifel cut the target to $50 from $55. Maintains hold rating.
- Southwest Airlines: Jefferies cut the recommendation to underperform from hold. PT set to $25
- Terex: Stifel raised the target to $76 from $64. Maintains buy rating.
- Qualcomm: Deutsche Bank cut the recommendation to hold from buy. PT set to $120.
- Zillow Group: Wells Fargo Securities maintains equal-weight rating. Pricer target set to $55 from $50.
